The Uniform Commercial Code is a series of laws adopted by individual states relating to business transactions. The UCC is not federal law. The Uniform Law Commission and the American Law Institute drafted the code to make interstate transactions more predictable.
If a company does not do business out of state, it is unlikely that the UCC will ever come up. But if an organization finds itself in an interstate contract dispute, here are five fundamental topics to understand.
1. What does the UCC cover?
The UCC provides several guidelines for commercial transactions. These include:
- Sales and bulk sales
- Negotiable instruments
- Bank deposits
- Funds transfers
- Letters of credit
- Documents of title
The guidelines also cover investment securities and secured transactions.
2. Are any transactions not covered?
The UCC provisions do not cover all transactions. Employment, real estate and service agreements are exempt.
3. What is a UCC filing?
When an interstate dispute arises, the creditor files a lien with the debtor’s secretary of state. This establishes the creditor’s right to the debtor’s assets.
4. What if the UCC filing is incorrect?
The debtor can file a request for more details. The creditor has 14 days to provide the information. If the filing is fraudulent, the records will show it is a mistake.
5. How does a filing affect credit?
This lien will negatively affect the business’s credit history. It takes five years for a UCC lien to come off a credit history.
The UCC takes some risk out of interstate commerce by making the laws uniform across all 50 states. But for companies that conduct business nationally, it is crucial to understand these five basic facts.